Fight for PABs Is On, Groups Say

The Bond Buyer - - Front Page - BY BRIAN TUMULTY

WASH­ING­TON – Muni mar­ket sup­port­ers of tax-ex­empt pri­vate ac­tiv­ity bonds were mar­shalling forces Fri­day to fight the House Repub­li­cans at­tempt to do away with them in their tax re­form bill.

Rep­re­sen­ta­tives of sev­eral or­ga­ni­za­tions said they were blind­sided Thurs­day to learn that the tax-ex­emp­tion for pri­vate ac­tiv­ity bonds would be ter­mi­nated as one of the rev­enue rais­ers to pay for tax re­form.

“We don’t have a lot of time,” Tim Fisher, leg­isla­tive and fed­eral af­fairs co­or­di­na­tor of the Coun­cil of De­vel­op­ment Fi­nance Agen­cies, said Fri­day. “The fact they did not high­light this in ad­vance gives me rea­son to think they planned to sneak this covertly through.”

Loss of the tax ex­emp­tion would mean is­suers would have to go to the tax­able bond mar­ket, driv­ing up costs “in the neigh­bor­hood of 25% to 30%,” Fisher said.

The House Ways and Means Com­mit­tee is to be­gin de­lib­er­a­tions on the 429page tax re­form bill at noon Mon­day. Chair­man Kevin Brady, R-Texas, ex­pects to fin­ish the vot­ing Thurs­day, send­ing the bill to the floor of the House for a vote the fol­low­ing week.

Con­ster­na­tion about this turn of events is deep­est among trans­porta­tion in­fra­struc­ture groups that ex­pected a pres­i­dent with a back­ground in real es­tate de­vel­op­ment to roll out a tax plan em­pha­siz­ing pub­lic-pri­vate part­ner­ships fi­nanced with pri­vate ac­tiv­ity bonds.

The Trump ad­min­is­tra­tion’s FY 2018 bud­get pro­posal “took a very dif­fer­ent ap­proach to this is­sue, rec­om­mend­ing lift­ing the cap on PABs and ex­pand­ing their el­i­gi­bil­ity,” said Dave Bauer, se­nior vice pres­i­dent of gov­ern­ment re­la­tions for the Amer­i­can Road & Trans­porta­tion Builders As­so­ci­a­tion.

Elim­i­nat­ing PABs “would take a step in the op­po­site di­rec­tion,” said Adam Snider, spokesman for the Amer­i­can As­so­ci­a­tion of Air­port Ex­ec­u­tives.

“In­stead of mak­ing it more costly for air­ports to fi­nance crit­i­cal in­fra­struc­ture projects, law­mak­ers should help air­ports by im­prov­ing their bond op­tions, in­creas­ing fed­eral Air­port Im­prove­ment Pro­gram fund­ing, and elim­i­nat­ing the out­dated fed­eral cap on lo­cal pas­sen­ger fa­cil­ity charges,” Snider said.

The Amer­i­can Pub­lic Trans­porta­tion As­so­ci­a­tion also pointed out the in­con­sis­tency. “Preemp­tively re­mov­ing PABs as a fi­nanc­ing tool for in­fra­struc­ture projects would un­der­mine Congress’ stated goal of lever­ag­ing a $1 tril­lion in­vest­ment in our na­tion’s in­fra­struc­ture,” APTA said. “In­stead, this pro­vi­sion would have a chill­ing ef­fect on pri­vate sec­tor in­vest­ments in in­fra­struc­ture projects.”

Ter­mi­nat­ing the tax ex­emp­tion of PABs after Dec. 31 of this year would raise $38.9 bil­lion over 10 years, ac­cord­ing to the con­gres­sional Joint Com­mit­tee on Tax­a­tion. Another $17.3 bil­lion would come from end­ing the ad­vance re­fund­ing of bonds after the same date. Re­peal of tax credit bonds, on the other hand, would re­duce rev­enues by $500 mil­lion be­cause they are tax­able bonds.

End­ing the tax ex­emp­tion for bonds for pro­fes­sional sports sta­di­ums and are­nas would be ef­fec­tive Nov. 2 and would raise $200 mil­lion in rev­enues. That pro­vi­sion may be broader than re­al­ized. Richard Chirls, a part­ner at Or­rick Her­ring­ton & Sut­cliffe, pointed out on Fri­day, that a state univer­sity could not is­sue tax-ex­empt gov­ern­men­tal bonds for a sta­dium if that sta­dium was used for a pro­fes­sional sports ex­hi­bi­tion, train­ing, or games for more than five days in any cal­en­dar year.

Democrats fa­vor an ex­pan­sion of the use of mu­nic­i­pal bonds as part of their in­fra­struc­ture strat­egy, in­clud­ing mak­ing per­ma­nent Build Amer­ica Bonds.

The 24 Repub­li­cans on the House Ways and Means Com­mit­tee who agreed to the bill can thwart any pro­posed changes of­fered by Democrats, who are in the mi­nor­ity and hold only 16 seats on the com­mit­tee.

Five or more Repub­li­cans on the com­mit­tee would have to break rank from their party and vote with the Democrats to re­store the tax ex­emp­tion for PABs.

“We are work­ing like crazy to make noise on this and get any Repub­li­can we can to of­fer an amend­ment that would strike the pro­vi­sion in the bill,” Fisher of CDFA said.

The Mu­nic­i­pal Bonds for Amer­ica Coali­tion drafted a let­ter on Fri­day to em­pha­size the broad sup­port for PABs and was seek­ing groups to sign it.

Fisher said the lob­bing fo­cus is on com­mit­tee Repub­li­cans who have sup­ported PABs in the past.

Nine of the Repub­li­cans on the com­mit­tee are, in fact, cospon­sors of a bill that would ex­pand the use of PABs to pub­lic build­ings.

A spokesman for the lead spon­sor, Rep. Mike Kelly, R-Pa., said on Oct. 27 that the con­gress­man planned to pro­pose in­sert­ing the Pub­lic Build­ing Re­newal Act, which au­tho­rizes the is­suance of $5 bil­lion in new PABs, into the tax re­form leg­is­la­tion.

Kelly’s spokesman did not im­me­di­ately re­spond Fri­day to a re­quest for an up­date on the con­gress­man’s plan.

Like­wise, 14 Repub­li­cans on the com­mit­tee are spon­sors of a bill to strengthen the low-in­come hous­ing tax credit which is of­ten linked with PABs in fi­nanc­ing af­ford­able mul­ti­fam­ily hous­ing projects.

Bar­bara Thomp­son, ex­ec­u­tive di­rec­tor of the Na­tional Coun­cil of State Hous­ing Agen­cies, said her group is reach­ing out to those Repub­li­cans to high­light how the low-in­come tax credit would be­come in­ef­fec­tive with­out PABs.

“The pro­gram is struc­tured so the only way you can get the credit is if its bond fi­nanced,” Thomp­son said. “You might as well be elim­i­nat­ing the credit. Our con­cern is that mem­bers don’t re­al­ize the link­age.”

Thomp­son said ter­mi­nat­ing tax-ex­empt PABs “would dec­i­mate rental hous­ing pro­duc­tion.”

“The fact they did not high­light this in ad­vance gives me rea­son to think they planned to sneak this covertly through,” said Tim Fisher, fed­eral af­fairs co­or­di­na­tor of the Coun­cil of De­vel­op­ment Fi­nance Agen­cies.

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